Late Payment of Commercial Debts Act: interest and fixed-fee compensation with worked examples Part 1

Part one covers what the Late Payment of Commercial Debts (Interest) Act 1998 does and when it applies. Part two shows exactly how to calculate statutory interest and the fixed-fee compensation—with step-by-step, worked examples you can copy. Part three explains how to put the rules to work in your collections process, including templates, guardrails and quick wins for finance teams. 

Part one: what the Act does and when it applies

What the Act gives you

For qualifying business-to-business (B2B) invoices, the Act provides three key rights:

1. Statutory interest at 8% above the Bank of England base rate (Bank Rate), accruing daily from the day after payment was due until the day it is paid.
2. Fixed-fee compensation per invoice: £40 (debts up to £999.99), £70 (£1,000–£9,999.99) or £100 (£10,000+). You add this once per late invoice.
3. Reasonable recovery costs in addition to the fixed fee if the fixed sum doesn’t cover your actual costs (for example, using a third-party collector or solicitor).

If your contract already sets a lawful interest rate or “substantial remedy,” the contractual clause will usually take precedence. But many SMEs have no clause at all—so when you’re chasing unpaid invoices, the statutory backstop ensures delay has a real cost attached.

The Bank Rate you must use

Under the legislation, the reference rate is locked in twice a year. Use the Bank Rate that applied on 31 December for debts becoming overdue 1 January–30 June, and the rate on 30 June for debts overdue 1 July–31 December. This biannual “lock-in” prevents arguments about mid-period rate changes and simplifies your maths.

When the Act applies (and when it doesn’t)

• Applies: commercial contracts for goods/services between businesses (including many public authority purchases).

Doesn’t apply: most consumer transactions; where a contract already provides a substantial late-payment remedy; or where sector-specific rules set different regimes. If you’re unsure about the process, this primer on commercial debt collection is a good starting point.

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